In calculating earnings per share, a company uses the treasury stock method when

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The treasury stock method is used to recognize the assumed impact of exercising outstanding warrants. It is a way to calculate the increase in the number of shares outstanding that would result from the assumed exercise of outstanding convertible securities or stock options. This method assumes that the proceeds from the exercise of the warrants, options or convertible securities are used to purchase treasury stock at the average market price during the period.

In Calculating Earnings Per Share, a Company Uses the Treasury